10

Question 1

when factoring A/R, what happens w/o recourse and w/ recourse?

Answer 1

• w/o = true sale (A/R decrease)
• w/ = true sale or pledge
• to be a sale, the seller’s obl. for “unc” must be reas. est’d (due from), sellers surrenders control, and seller cannot be req’d to repurch. rec’s (might have to replace)
• if not all met, treat as LOAN and footnote only

Question 2

what do you do with accommodated shipping cost in regards to a sale?

Answer 2

it is added to the sale

Question 3

what would alter the timing of CF’s of A/R already recorded on the books?

Answer 3

factoring the receivables O/S

Question 4

how should a corp. report its losses in inventory in interim FS’s?

Answer 4

inventory losses should gen. be recog’d in the interim FS’s

Question 5

for agricultural products and precious metals, when is revenue recog’d?

Answer 5

it is recog’d at the time of production, NOT the time of sale

Question 6

what does FOB destination mean?

Answer 6

FOB dest. means that title passes when rec’d

• packaging, shipping, and handling costs are of the SELLER

Question 7

what method most closely approx’s current cost for COGS and EI?

Answer 7

for COGS is LIFO, and EI is FIFO

Question 8

what is the moving average method?

Answer 8

it assumes a perpetual record and a new WA is computed after each PURCH and issues are priced at latest WA cost

• COGAFS/units = WA unit cost

Question 9

during periods of RISING PRICES, when FIFO is used, a perp. inv. system results in an EI cost that is:

Answer 9

the same as in periodic inv. system

*LIFO is gen. not the same b/c old inv. is disposed of on FIFO basis

Question 10

which GAAP inv. costing method will be most likely to give the lowest EI when product lines are subject to specific price increases?

Answer 10

DV LIFO (LIFO gen. has lowest EI b/c of selling of new and pricier inv and keeping the old)

Question 11

how do you get DV LIFO inv cost for a specific year?

Answer 11

total EOY inv cost/ total BY inv cost = price index
*price index * annual increments layer = year 2 layer

• 1st year layer = same amount (add to above) = inv cost for a specific year under DV LIFO

Question 12

what do EI and NI have in common?

Answer 12

they correlate with each other in regards to increase and decreases for changes from FIFO to LIFO

Question 13

where is transportation to consignees cost included?

Answer 13

it is included in the consignor’s inv. cost

Question 14

how do you record inv. valuation for LCM? (for LIFO and retail)

Answer 14

ceiling = NRV
replacement cost = given
floor = NRV - profit margin

• get middle of market, and compare to cost. lower value = net CV of inventory

Question 15

what is a disadvantage of the periodic inv. system?

Answer 15

the COGS includes both cost of inv. sold and inv. shortages

Question 16

how do you calculate WA inv. method?

Answer 16

get COGAFS / total units = new price index

Question 17

which GAAP inv. costing method would a company wish to maximize profits in a period of rising prices?

Answer 17

they would use FIFO (lowest COGS, higher EI)

Question 18

how do you account and report for inventory less than fixed purchase price by a material amount?

Answer 18

• describe nature in notes, *recognize the loss in the IS

* recognize a liability for the accrued loss

Question 19

how do you account for LC-NRV? (for FIFO and WA)

Answer 19

inventory is valued at lower of cost or NRV (SP-cost to sell)

Question 20

what is permitted under IFRS in regards to inv. write-down?

Answer 20

under IFRS, you can reverse the write-down up to the extent of the loss in the previous year